The verdict is in. Last night, the U.S. Department of Labor (DOL) issued its heavily anticipated Final Rule regarding overtime exempt status for “white collar” workers. The Final Rule will raise the minimum annual salary threshold for exempt “white collar” workers to $47,476 ($913/week). This means that almost all employees earning a salary less than $47,476 per year will need to be classified as nonexempt for the purposes of wage and hour law (there are very limited exceptions – consult with employment counsel if you have questions regarding possible exceptions to the new rule). Nonexempt employees are entitled to an overtime premium when working more than 40 hours in a workweek, and employers must keep more detailed records for nonexempt employees. The $47,476 threshold is slightly less than the previously proposed minimum of $50,440. DOL estimates that the Final Rule will extend overtime protections to more than 4 million workers. The Final Rule does not make any changes to the duties test for executive, administrative and professional employees.
The Final Rule includes the previously proposed minimum salary escalator, meaning the new threshold of $47,476 will automatically increase over time. However, the minimum salary threshold will increase every three years, rather than every year as originally proposed. In a departure from the proposed rule, the Final Rule allows employers to count nondiscretionary bonuses, incentives, and commissions toward up to 10 percent of the required minimum salary, so long as employers pay those amounts on a quarterly or more frequent basis. Previously, nondiscretionary bonuses were not allowed to be included in the minimum salary calculus.
The Final Rule gives businesses more than 6 months to comply, as the rule has an effective date of December 1, 2016. Given the considerable increase in the minimum salary threshold, and the current political climate, we expect congressional challenges to the Final Rule. House and Senate Republicans have already introduced legislation calling for the rule to be nullified. The Final Rule might also get challenged via the Congressional Review Act, which allows Congress to overrule “major” final rules issued by federal agencies—like the DOL—by a “joint resolution of disapproval.” The resolution is subject to a potential presidential veto (a virtual lock considering President Obama was the driving force behind updating the overtime rules), which would then require a two-thirds congressional vote to override the veto.
Legislative posturing aside, employers need to prepare for implementation of the Final Rule on December 1, 2016. Skoler Abbott will be hosting a Breakfast Briefing on June 7, 2016, where attorneys will discuss strategies for complying with the Final Rule and steps employers should take immediately to get prepared. For those on our E-Alerts list, be on the lookout for a formal Breakfast Briefing announcement in the coming days.